Ukraine, Russia, China and the Transition
Russia’s invasion of Ukraine casts a huge, dark cloud over the future in many frightening ways. But there could be a silver lining — not worth the price, perhaps, but far from worthless. The rupture with Russia could push Europe to move even faster onto renewable energy and EVs, and off the oil and gas for which they depend heavily on Russia. Higher oil and gas prices could give the transition a smaller but notable boost in the US and elsewhere, too.
From the perspective of the energy transition, though, China is the key player to watch as events unfold. If China ends up on the Russian side of the new curtain going up between Russia and the West, the US and Europe will be isolating themselves from the world’s biggest New Energy player, instead of just its second biggest Old Energy producer (after the US). That’s not a good thing given the imperative to reduce emissions quickly.
Russia’s Old Energy Role
Natural gas is much harder and costlier to move around than oil, simply because it’s a gas rather than a liquid. That inherent inflexibility means Europe’s reliance on Russia for more than one-third of the natural gas it uses to generate electricity, heat buildings and run factories poses a much more immediate risk to the EU than its reliance on Russian oil.
Europe can’t readily find a substitute for Russian natural gas. Even prices 10 times higher than those now seen in the US — which are themselves roughly double last year’s — aren’t bringing much more gas into Europe. The transport capacity matched with supply simply isn’t there. German Chancellor Olaf Scholz has mentioned building two facilities to bring natural gas in liquified form (LNG) via tanker into Germany, but those won’t likely be completed for years and a steady source of supply might be unavailable for even longer.
Europe’s leaders have said repeatedly over the course of this clash with Russia that the ultimate answer is more solar, wind and battery storage. Hopefully they will stick to this, because increasing global capacity to produce more LNG and get it into Europe would not only take years, it would leave a lot of expensive gas-processing equipment sitting around that won’t be needed once cheaper renewables capacity is expanded. Fossil fuel production isn’t inherently flexible.
Oil is expensive amid all the uncertainty over trade with Russia, the world’s third largest producer, marginally behind Saudi Arabia and the US. But the $100-plus per barrel crude oil — which is likely to convert into $4-plus per gallon gasoline in much of the US — is tolerable. Uncomfortable for many less-wealthy households, but tolerable.
Oil is not as inflexible as natural gas. Should Europe quit importing Russian oil, the dislocation might push global oil prices up a bit higher still, but probably not much more, as long as somebody else bought that Russian oil, clearing up volumes from elsewhere to go into Europe.
What would turn this into a full-fledged economic crisis would be to slash Russian oil exports by erasing its ability to get paid, as the US did with Iran. The Chinese would probably find ways around Western financial sanctions to continue buying Russian oil, but whether others — from India to South America — could do the same is an open question. And US consumers would pay the resulting higher price even if they use no Russian oil.
China’s New Energy Role
As the US and Europe move towards ever tougher sanctions against Russia, China’s response is critical. Will the US try not only to freeze Russia out of its own banking system and limit its access to the dollar-centric international financial communication system known as Swift, but also to impose third-party sanctions on Chinese and other corporations and banks that deal with Russia?
China is frequently described in the Western press as being on the fence and inclined to tilt away from Russia if fighting continues. This is likely to prove wishful thinking. The Chinese might prefer that events in Ukraine were not unfolding as they are, but that doesn’t necessarily translate into criticism of Russia. Rather, the “conflict” is a direct result of “selfish” and overly assertive US policies, as the story is told by the Global Times, an English language news site run by the Chinese Communist Party.
“It is fair to say the evolution of the situation in Ukraine until today is a geopolitical tragedy,” the Global Times wrote in an editorial Feb. 25. But it’s not the Russians’ fault. “From the very beginning, it’s a bitter result of the US’ strategic selfishness and shortsightedness.”
In its news coverage, the Global Times and also official Chinese news agency Xinhua emphasized how quickly Russian troops were gaining control of Ukraine — while Western outlets were talking about the invasion progressing more slowly than expected. The Chinese English-language news sites also emphasized Russian offers to negotiate with Ukraine and Ukraine’s initial refusal to do so. Western outlets tended to describe this as a “diplomatic dance” (Reuters) or something similar.
As long as sanctions don’t materially affect China’s own trade with Russia — which is already carried out to some extent in yuan rather than dollars — it’s quite possible that Western trade with China won’t be much affected. However, the Global Times early in the invasion quoted an unnamed senior consulting executive in Beijing as saying that Swift sanctions ring “an alarm bell that Western financial systems are unreliable for countries like China which they see as competitors.” There’s much talk out of China — and Russia — of “de-dollarization.”
That would not be good for a country like the US that’s long used to living on the credit that the dollar’s reserve status makes readily available.
China is far and away the world’s largest manufacturer and supplier to the West of solar panels. And while both the US and EU have policies in place to foster domestic alternatives, including 14%-15% tariffs on the most common type of panels in the US for another four years under new orders from Biden, that will take many years. The Biden administration also announced plans to heavily fund new battery manufacturing capacity inside the US. But again, it will take years.
A Third Way
There’s another way to look at it. An economic split between the West and both Russia and China would likely cause a major recession on both sides of the divide. That would reduce use of all types of energy, including both Russia’s fossil fuels and China’s renewable generating equipment.
That trajectory has many painful aspects, particularly for those who struggle to get by at a basic level even when economies are thriving. But it might be where we’re headed, and perhaps with all its problems, that’s better than staying on the Old Energy path that got us into the Climate Crisis in the first place.
I keep hoping, though, that humanity can find a better way to get to the lower emitting, polluting and consuming place where we need to be.
